ABC Global Research Asian Economics Paul Bloxham Chief Economist (Australia and New Zealand) HSBC Bank Australia Limited +61 (2) 9255 2635 [email protected]@hsbc.com.au

ABCGlobal Research

Asian Economics

Paul Bloxham

Chief Economist (Australia and New Zealand)

HSBC Bank Australia Limited

+61 (2) 9255 2635 [email protected]

New Zealand in 2014Firing on all cylindersFebruary 2014

View HSBC Global Research at: http://www.research.hsbc.com

Issuer of report: HSBC Bank Australia Limited

Disclosures and Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

mailto:[email protected]

http://www.research.hsbc.com/

CompanyLogo

Delete grid from slide master2

New Zealand in 2014: Firing on all cylinders

1) China is slowing but is still set to outperform the rest of the world

2) New Zealand is at the beginning of a boom and is set to outperform in 2014

3) Post-earthquake reconstruction is massive and is ramping up

4) New Zealand’s housing market is booming and is supporting consumer spending

5) Strong Asian demand has provided a significant boost to export prices

6) NZD is likely to stay structurally high and rates may have to increase soon

CompanyLogo


1.1) China’s GDP growth slowing to more sustainable rates, but still rapid

Source: Thomson Reuters Datastream, HSBC estimates

CompanyLogo


1.2) Despite slower growth, China will still contribute significantly to global growth

Source: IMF

CompanyLogo


1.3) China (and India) still have a long way to go

Source: IMF

CompanyLogo


1.4) China is just mid-way through its urbanisation process

Source: US Census Bureau, CEIC, HSBC

Rural population as % of total

0

20

40

60

80

100

1840 1860 1880 1910 1930 1950 1970 1990 2010

(%)1950 1970 1990 2010

US China (upper scale)

CompanyLogo


1.5) Lots of growth from China yet, as large parts remain relatively undeveloped

Source: CEIC, HSBC

-

2

4

6

8

10

12

14

Tian

jin

Shan

ghai

Beijin

g

Jian

gsu

Zhej

iang

Inne

r Mon

golia

Liao

ning

Gua

ngdo

ng

Shan

dong

Fujia

n

Jilin

Cho

ngqi

ng

Hub

ei

Heb

ei

Shaa

nxi

Hei

long

jiang

Nin

gxia

Shan

xi

Hun

an

Xinj

iang

Hen

an

Qin

ghai

Hai

nan

Sich

uan

Jian

gxi

Anhu

i

Gua

ngxi

Tibe

t

Gan

su

Yunn

an

Gui

zhou

2011 GDP per capita (USD '000/person)

c815m population

CompanyLogo


1.6) Summary of Global Themes for 2014

- China: The year of reform – quality, not quantity of growth

- Japan: Still transforming – offshore flows expected

- United States: A modest road to recovery

- Asia: Rates matter more than exports – politics also important

- India: Stabilising, but still weak

- Europe: Better, but not good enough

- Brazil: World Cup will not be enough

- Global: Deflation is the hidden threat – watch for impact of Federal Reserve withdrawal

CompanyLogo

Delete grid from slide master

2.1) The New Zealand economy looks to be expanding at a rapid pace

Source: CEIC, Bloomberg, Statistics New Zealand

9

CompanyLogo


3.1) The Canterbury rebuild is large and set to persist

Source: Statistics New Zealand, HSBC estimates

10

CompanyLogo


4.1) New Zealand’s housing market continues to strengthen

Source: Bloomberg

11

CompanyLogo


4.2) Strong inward migration is supporting housing demand

Source: Statistics New Zealand

12

CompanyLogo


4.3) Rising asset prices and an improving labour market are supporting spending

Source: Bloomberg, Statistics New Zealand

13

CompanyLogo


5.1) New Zealand’s primary exports are skewed increasingly toward Asia


14

CompanyLogo


5.2) New Zealand accounts for two-thirds of China’s dairy imports

Source: UN

15

CompanyLogo


5.3) Commodity prices remain around their long run average levels

Source: United Nations

CompanyLogo


5.4) Commodity-intensive economies driving the bulk of global growth

Source: Total Economy Database, IMF, HSBC estimates

CompanyLogo


5.5) Emerging Asia’s demand for animal products likely to continue to rise

Source: FAO, Conference Board, HSBC

18

CompanyLogo


5.6) Meat consumption is already high in China, driven by pork


19

CompanyLogo


5.7) Dairy consumption is low in China and elsewhere in Asia


20

CompanyLogo


6.1) Fiscal consolidation to be a key headwind for the economy

Source: New Zealand Treasury

21

CompanyLogo


6.2) New Zealand’s supply potential has dropped since the GFC


22

CompanyLogo


6.3) With the economy at capacity, cost pressures are beginning to rise


23

CompanyLogo


6.4) The RBNZ will need to lift rates through 2014 to keep inflation in check

Source: RBNZ, HSBC

24

CompanyLogo


6.5) New Zealand will likely face the challenge of a strong exchange rate

Source: RBNZ, Statistics New Zealand

25

CompanyLogo


6.6) Even manufacturers are doing well, supported by the Canterbury rebuild


26

CompanyLogo


Disclosure appendix Analyst Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Paul Bloxham

Important Disclosures This document has been prepared and is being distributed by the Research Department of HSBC and is intended solely for the clients of HSBC and is not for publication to other persons, whether through the press or by other means.

This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other investment products mentioned in it and/or to participate in any trading strategy. Advice in this document is general and should not be construed as personal advice, given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to their objectives, financial situation and needs. If necessary, seek professional investment and tax advice.

Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors. Investors should consult with their HSBC representative regarding the suitability of the investment products mentioned in this document and take into account their specific investment objectives, financial situation or particular needs before making a commitment to purchase investment products.

The value of and the income produced by the investment products mentioned in this document may fluctuate, so that an investor may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested. Value and income from investment products may be adversely affected by exchange rates, interest rates, or other factors. Past performance of a particular investment product is not indicative of future results.

HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives) of companies covered in HSBC Research on a principal or agency basis.

Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking revenues.

For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research.

27

CompanyLogo


Additional disclosures 1 This report is dated as at 11 February 2014. 2 All market data included in this report are dated as at close 11 February 2014, unless otherwise indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's

analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

CompanyLogo


Disclaimer * Legal entities as at 8 August 2012 ‘UAE’ HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai Banking Corporation Limited, Hong Kong; ‘TW’ HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Bank Canada, Toronto; HSBC Bank, Paris Branch; HSBC France; ‘DE’ HSBC Trinkaus & Burkhardt AG, Düsseldorf; 000 HSBC Bank (RR), Moscow; ‘IN’ HSBC Securities and Capital Markets (India) Private Limited, Mumbai; ‘JP’ HSBC Securities (Japan) Limited, Tokyo; ‘EG’ HSBC Securities Egypt SAE, Cairo; ‘CN’ HSBC Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv; ‘US’ HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple, Grupo Financiero HSBC; HSBC Bank Brasil SA – Banco Múltiplo; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR

Issuer of report

HSBC Bank Australia Limited Level 32

HSBC Centre

580 George Street

Sydney, NSW 2000, Australia

Telephone: +61 2 9006 5888

Fax: +61 2 9255 2205

Website: www.research.hsbc.com In Australia, this publication has been distributed by The Hongkong and Shanghai Banking Corporation Limited (ABN 65 117 925 970, AFSL 301737) for the general information of its “wholesale” customers (as defined in the Corporations Act 2001). Where distributed to retail customers, this research is distributed by HSBC Bank Australia Limited (AFSL No. 232595). These respective entities make no representations that the products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. This material is distributed in the United Kingdom by HSBC Bank plc. In the UK this material may only be distributed to institutional and professional customers and is not intended for private customers. Any recommendations contained in it are intended for the professional investors to whom it is distributed. This publication is distributed in New Zealand by The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR. This material is distributed in Japan by HSBC Securities (Japan) Limited. This material may be distributed in the United States solely to "major US institutional investors" (as defined in Rule 15a-6 of the US Securities Exchange Act of 1934); such recipients should note that any transactions effected on their behalf will be undertaken through HSBC Securities (USA) Inc. in the United States. Note, however, that HSBC Securities (USA) Inc. is not distributing this report, has not contributed to or participated in its preparation, and does not take responsibility for its contents. In Singapore, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch for the general information of institutional investors or other persons specified in Sections 274 and 304 of the Securities and Futures Act (Chapter 289) (“SFA”) and accredited investors and other persons in accordance with the conditions specified in Sections 275 and 305 of the SFA. This publication is not a prospectus as defined in the SFA. It may not be further distributed in whole or in part for any purpose. In Korea, this publication is distributed by either The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch ("HBAP SLS") or The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch ("HBAP SEL") for the general information of professional investors specified in Article 9 of the Financial Investment Services and Capital Markets Act (“FSCMA”). This publication is not a prospectus as defined in the FSCMA. It may not be further distributed in whole or in part for any purpose. Both HBAP SLS and HBAP SEL are regulated by the Financial Services Commission and the Financial Supervisory Service of Korea. The Hongkong and Shanghai Banking Corporation Limited Singapore Branch is regulated by the Monetary Authority of Singapore. Recipients in Singapore should contact a "Hongkong and Shanghai Banking Corporation Limited, Singapore Branch" representative in respect of any matters arising from, or in connection with this report. HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC is authorized and regulated by Secretaría de Hacienda y Crédito Público and Comisión Nacional Bancaria y de Valores (CNBV). HSBC Bank (Panama) S.A. is regulated by Superintendencia de Bancos de Panama. Banco HSBC Honduras S.A. is regulated by Comisión Nacional de Bancos y Seguros (CNBS). Banco HSBC Salvadoreño, S.A. is regulated by Superintendencia del Sistema Financiero (SSF). HSBC Colombia S.A. is regulated by Superintendencia Financiera de Colombia. Banco HSBC Costa Rica S.A. is supervised by Superintendencia General de Entidades Financieras (SUGEF). Banistmo Nicaragua, S.A. is authorized and regulated by Superintendencia de Bancos y de Otras Instituciones Financieras (SIBOIF). This material is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. This document has been prepared without taking account of the objectives, financial situation or needs of any specific person who may receive this document. Any such person should, before acting on the information in this document, consider the appropriateness of the information, having regard to the personal objectives, financial situation and needs. In all cases, anyone proposing to rely on or use the information in this document should independently verify and check its accuracy, completeness, reliability and suitability and should obtain independent and specific advice from appropriate professionals or experts. HSBC has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of HSBC only and are subject to change without notice. HSBC and its affiliates and/or their officers, directors and employees may have positions in any securities mentioned in this document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). HSBC and its affiliates may act as market maker or have assumed an underwriting commitment in the securities of any companies discussed in this document (or in related investments), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform banking or underwriting services for or relating to those companies. This material may not be further distributed in whole or in part for any purpose. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. (070905) In Canada, this document has been distributed by HSBC Bank Canada and/or its affiliates. Where this document contains market updates/overviews, or similar materials (collectively deemed “Commentary” in Canada although other affiliate jurisdictions may term “Commentary” as either “macro-research” or “research”), the Commentary is not an offer to sell, or a solicitation of an offer to sell or subscribe for, any financial product or instrument (including, without limitation, any currencies, securities, commodities or other financial instruments). © Copyright 2014, HSBC Bank Australia Ltd, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Bank Australia Limited. MICA (P) 118/04/2013, MICA (P) 068/04/2013 and MICA (P) 077/01/2014

Documents

ABC Global Research Asian Economics Paul Bloxham Chief Economist (Australia and New Zealand) HSBC Bank Australia Limited +61 (2) 9255 2635 [email protected]@hsbc.com.au